The adaptation puzzle - change management

With so many attempts failing, isn’t it time you restructured your approach to change management?

The more things change, the more they stay the same. Nowhere does this French saying spring to mind more often than when I interview senior pharma executives about their attempts to adapt the company to the changing market. Restructuring and process re-engineering are, as one interviewee put it, “like rain in Manchester – heavy, frequent and unavoidable!”

And yet, when I probe for the end result of this change – such as improved flexibility, effectiveness or innovativeness – I am told the results are “hard to demonstrate” or “impossible to quantify”. Long-serving executives suggest that, fundamentally, pharma companies may be no more effective, and possibly less so, than 30 or 40 years ago. Why real organisational change is so difficult, and how it might be achieved, is part of our larger research project into the future of the industry.

Our research in this area begins with asking what the barrier to change is. As is often the case, the answers are a cacophony of competing causes. At first, it seemed to us that there was no over-arching explanation for why pharmaceutical companies find change so difficult. Like Tolstoy's unhappy families, every failed change programme fails in its own way. But such complexity is the stuff of academic life and we have methods for untangling such knots. And we begin with developing a taxonomy of change barriers – a way of grouping all the different factors into categories.

This grouping process reveals four high-level categories of change barrier: Culture, Process, Capabilities and Structure (CPCS). Every failure to achieve organisational change could be attributed to one or more of these. Typical examples were obsession with buy-in, leading to slow and timid decisions (Culture); over-engineered approval processes that killed innovative ideas (Process); inability to make sense of market changes, especially in marketing and market access (Capabilities); and unclear responsibilities in matrix project teams (Structure).

There were many more cited change barriers and the detailed nature of each varied with the specific context of firm, therapy area and product life cycle stage, but we found this fundamental CPCS structure was the first step in making sense of what slows or stops change in pharmaceutical companies.

Construct definitionOur next step forward in understanding the problem came when we used the next powerful tool in the academics' armoury – construct definition. In other words, we tried to pin down what we meant by culture, process, capabilities and structure. This was surprisingly difficult and it led us to realise that each of the four boxes we had put the problems into actually had an upper and lower layer.

For each of the four factors, there was a visible element and an invisible, or at least hidden or disguised element. So when we looked at cultural barriers to change, we could observe visible embedded habits, such as defining markets in terms of products. But beneath this was an implicit cultural assumption that the molecule, rather than the customer, was what was interesting. Similarly, decision approval processes that were visibly inefficient were driven by unspoken political sub-processes. Where we observed visible capability weaknesses in, for example, developing value propositions beyond the molecule, we also perceived causal weaknesses in what academics label second order, dynamic capabilities – those that enable companies to shift resources and change competencies. And finally, where we observed problems attributed to structure, such as blurred reporting relationships, these reflected ambiguities in the intended strategic change. When we had finished unravelling this complex, two layered explanation of what prevents strategic change, we consolidated it into our Proximate/Ultimate Change Barrier model (see figure 1), which shows an example set of barriers from the large number we discovered in our research.

Figure 1: The Proximate/Ultimate Change Barrier model

Barrier Type

Cultural

Process

Capability

Structures

Proximate, visible barrier

Bad habits, eg product orientation

Inefficient processes, eg slow decision approval

Weak core capabilities, eg in extended value proposition design

Structures not aligned to strategic goals, eg unclear reporting lines

Ultimate, hidden barrier

Outdated assumptions, eg product performance is paramount

Political sub-processes,eg self interest and bargaining

Weak dynamic capabilities, eg in shifting resources within company

Ambiguous strategic change targets, eg conflicting resource demands

So, by this point in our research we had identified that strategic change was hindered by many things and that no two situations were identical. But the myriad barriers could be classified according to their source and understood at both superficial and fundamental levels. This, we felt, was a big step towards explaining the problem. However, academics are often haunted by the words on Karl Marx's tomb: The philosophers have only interpreted the world, in various ways. The point, however, is to change it. Our next step was to see if we could understand how firms overcame these barriers to realise significant organisational change.

A 'wicked problem'Our first, next step almost ended in failure. We tried to evaluate, by looking at how often different classes of barriers were reported, the relative importance of the four CPCS factors. Again, each case seemed unique with no discernible pattern and we began to doubt our own model.

Culture did seem to crop up in most cases, but never alone. It was always complicated by one, two or three of the other three factors. And the relative importance of process, capabilities and structure seemed to have some relation to context – process in large companies for example, capabilities in turbulent markets and structure in very competitive environments. But the relationship was by no means clear cut and did not help us towards a solution.

Then, as with almost all management science questions, we were helped by metaphor. We discussed how this was a 'Wicked Problem'. The term refers to problems that resist explanation and solution because of the interdependency of their component parts. That mental leap led us to look for the interdependency between the four components and, by extension, the existence of other components of the problem.

In time, that train of thought led us to see that what underpinned success or failure in organisational change was the fit between an organisation's basic cultural assumptions (eg superior clinical outcomes are the key to success) and the market environment (eg market access demands superior health economic outcomes). When this fit is poor, it leads to poorly defined strategic change requirements. Conversely, well-defined strategic change flows from a good assumption-market reality fit. Well defined strategic change is necessary but not sufficient for organisational change, however. Strategic change becomes reality when it is implemented through appropriate structures and processes. For example, a strategic change to offer superior health economic outcomes through a complex diagnostic/therapeutic value proposition requires structures and processes that integrate marketing, market access in both pathology labs and with prescribers.

However, even this is not sufficient to achieve organisation change, because the effectiveness of structures and processes (even ones appropriate to the strategic change) depend on having the right capabilities. For example, our complex value proposition would require capabilities in designing and demonstrating an economically based value proposition. And that capability (which academics would call a core, or first order, capability) can only be created if the firm has the dynamic (or second order) capability to shift and shape resources into, in this case, market access and key account management.

Figure 2: The factors driving change

We recognise that this isn't a neat, short answer but that's only appropriate. Strategic change management is a wicked and messy problem and executives should be sceptical of neat answers to messy problems. To clarify, we've summed up our findings about how change happens in figure 2.

We think our work explains why pharma companies seem to change yet stay the same. More importantly, as Marx would have seen it, we hope our work may change that frustrating situation.